April 2024 market commentary

Equity and fixed-income markets struggled in April as persistent inflation increased market speculation that central banks might limit the speed and scope of anticipated rate cuts. Rising bond yields in the US exerted additional pressure on the S&P 500 which fell by 4.08%, despite a late rally. The Euro STOXX 50 dropped back 2.25% and Japanese equities suffered a dent in their otherwise solid year-to-date gains, the Nikkei 225 losing 4.86% over the month. Buoyed by a strong showing across energy and commodity sectors, the FTSE 100 bucked the trend among the major indices posting a 2.72% gain.

The performance of the ‘magnificent seven’ megacap tech stocks continues to dominate the headlines, though fortunes in 2024 have so far been mixed – while the likes of Nvidia and Meta have enjoyed significant year-to-date gains, Tesla and Apple have lagged a way behind.

April market summary

The Federal Reserve held its benchmark interest rate at 5.25%-5.5% for the fifth consecutive time as inflation increased slightly from February’s estimate to 3.5%. While US inflation has decreased by 60% from its 9.1% peak in June 2022, the Fed remains concerned that prices for housing and groceries are too high, even as the costs of key essentials are falling. The recent knock in confidence may have put paid to the most optimistic rate-cutting forecasts, but Fed officials still anticipate three quarter-point cuts during the year, reducing the benchmark rate to a range between 4.5% and 4.75%. The Fed also used its March meeting to raise its growth expectations for the overall economy, increasing its 2024 projection from 1.4% to 2.1%, and its 2025 estimate from 1.8% to 2%.

Inflation in the eurozone held at 2.4% in April, though core inflation dipped for the ninth consecutive month thanks to a further reduction in the costs of services. Signs of stability and progress towards the region’s 2% benchmark fuelled speculation that the European Central Bank will announce a preliminary rate cut in June. Economic growth in the eurozone also exceeded expectations with Eurostat reporting that first quarter data put regional GDP growth at 0.3% – a significant improvement on their previous prediction of a 0.1% fall. Positive news across member states and better-than-expected data returns from the German, French and Italian economies contributed to Eurostat’s revised projection.

UK inflation fell back to 3.2%, fuelled largely by food inflation dropping to a 30-month low and overall retail inflation falling below 1%. With household energy bills falling at the beginning of April and another cut in Ofgem’s price cap expected in July, an overall reduction of inflationary base effects could see the Bank of England’s 2% benchmark reached during the second half of 2024. The Bank’s future decisions on rate cuts may nevertheless be influenced by factors other than stabilising inflation and government pressure in an election year. With businesses and mortgage-holders facing higher refinancing costs, maintaining business and consumer confidence in the economy could become a major talking point for the Monetary Policy Committee.

(All returns are sourced from FactSet and are reported as total return in local currency for the period 02/04/2024 — 30/04/2024).

Intergovernmental Negotiating Committee clears a path to plastic pollution legislation 

The Intergovernmental Negotiation Committee on Plastic Pollution (INC) was formed in 2022 by the UN Environment Assembly where a resolution was adopted to develop legally binding measures to tackle global plastic pollution. During its fourth session (INC-4) in Ottawa, Canada, more than 2,500 delegates discussed emissions and releases, production, product design, waste management, problematic and avoidable plastics, financing, and a just transition for the producing sector. The session ended with an advanced draft of the proposed legislation and agreement on collective intersessional work ahead of INC-5, the final session scheduled for November in Busan, South Korea.

Additionally, over two dozen member countries signed the Bridge to Busan Declaration on Primary Plastic Polymers which called on member states to commit to achieving sustainable levels of production on primary plastic polymers, ensure transparency in production, and agree to a global objective regarding their sustainable production. It’s hoped that Busan delivers the kind of global legislation that addresses the life cycle of plastic to eliminate unnecessary plastic, fully integrate existing materials into circular production models, and realise a world free of plastic waste and pollution.

It’s hoped that Busan delivers the kind of global legislation that addresses the life cycle of plastic to eliminate unnecessary plastic, fully integrate existing materials into circular production models, and realise a world free of plastic waste and pollution.

Green Finance Institute (GFI) shows nature degradation is damaging the UK economy 

A first-of-its-kind study led by the GFI estimated that nature loss in the UK could lead to a 12% cut in GDP in the next decade – significantly more than the losses occasioned by the Covid-19 pandemic or the 2008 global financial crisis.

The study – Assessing the Materiality of Nature-Related Financial Risks for the UK – concluded that, in addition to the wider social impacts, biodiversity loss and environmental degradation created demonstrably material risks for the domestic economy and long-term financial resilience. Among its key takeaways, the study found that biodiversity loss was as detrimental to economic security as climate change and compounded with growing climate risks. Chronic year-to-year degradation also increased the occurrence and impacts of isolated environmental shocks. While the agricultural sector faced the highest potential risk, service and manufacturing industries are likely to suffer significant hits to future economic growth, largely through the declining quality and quantity of water, reduced access to raw materials, and changes in land use.

A study estimated that nature loss in the UK could lead to a 
12% cut in GDP in the next decade — significantly more
than the losses occasioned by the Covid-19 pandemic 
or the 2008 global financial crisis.

The study estimated that half of the UK’s nature-related risk comes from overseas supply chains and financial exposures, directly impacting £3.8 trillion of UK financial assets. It also estimated “conservatively” that the UK’s seven largest banks could see near-term adjustments to portfolio valuations of 4%-5% due to the wider exposure of domestic at-risk sectors.